The Real Estate Agent Contract, or Exclusive Listing Agreement

Reader question: “I need some urgent help from somebody other than a real estate agent. I’m hoping you can give me the straight scoop on this subject. We are gearing up to list our house for sale. We spoke to a couple of listing agents about it, and had one come over for a visit. He presented us with a document called the ‘Exclusive Right to Sell Listing Agreement.’

“As far as I can tell, this is a legally binding contract between the real estate agent and us. At the top of the agreement, it talks about a listing period. He wrote in a start date that is about one week from now, and we are fine with that since we are eager to get started. It goes on to say that the agreement will expire on [blank]. The agent wrote in an expiration date that is one year from now. He said this will prevent us from having to do the paperwork over again down the road, if the house takes longer to sell than we expected.

“Is this normal? I’m uncomfortable about signing a real estate agent contract for such a long period of time. What is the average length of time for an exclusive listing agreement?”

You are right to feel uncomfortable with such a contract. It’s unusual for a real estate agent to propose a one-year exclusive listing period right off the bat. Personally, I would never lock myself into a one-year contract with an agent just to save them a bit of paperwork down the road. In my mind, that alone does not warrant a one-year listing period. After all, it only takes ten minutes to redo the paperwork.

Of course, there may be certain situations where a 12-month term makes sense. Short sales are one example. In some cases, short sales can take a long time to complete. This is especially true if the bank is swamped with short-sale requests, foreclosure processing, etc. But even then, I would rather opt for a shorter listing period and simply redo the paperwork down the road, if it came to that. Who’s to say the agent will do a good job?

Before we go any further, I want to explain some of the terminology in use here. Other readers might not be familiar with real estate contracts, exclusive right-to-sell listing agreements, and the like. Here’s a crash course.

The Exclusive Right-to-Sell Listing Agreement

When you sell a home with the help of a real estate agent, you compensate the agent in the form of a commission. The commission is usually expressed as a percentage of the sale amount. For instance, a 3% commission on a home sold for $200,000 would come out to $6,000. In most cases, the full commission is closer to 6%, and it gets split between both the buyer’s and the seller’s agents (with 3% going to each person).

A listing agreement is a contract between the homeowner / seller and the real estate agent who is selling the home. It is a legally binding contract, enforceable by law. Most states have a standard form that is used for this purpose. In California, where I live, most agents use the “Residential Listing Agreement” created by the California Association of Realtors. The bulk of this document is made up of standard disclosures that are required by state law. There are really only a handful of items that need to be filled in by the signing parties, and these are the most important parts of the listing agreement.

Here’s a snapshot of the document used by Realtors in California. This is the top of the first page. The full contract might be 6 – 10 pages long, depending on the state in which you reside. This is the part of the listing agreement that includes the start date and the end date. It also includes the name of the seller and the real estate agent who is selling the house, often labeled as “broker.”

Standard listing agreement used by real estate agents in California. Click to enlarge.

There’s one phrase in particular I want you to notice in the above image. It’s the part that says the agent / broker has the “exclusive and irrevocable right” to sell the property during the prescribed listing period. “Exclusive” means that no other agent can earn a commission from the sale of your home during the contract period. “Irrevocable” means the broker’s commission rights cannot be changed or reversed during the listing period. Your contract might not have those exact words, depending on the state you’re in. But it probably says something similar.

Basically, this document says that you are giving your real estate agent the exclusive right to sell your house during the listing period. It also spells out the exact commission you are giving the agent, expressed as a percentage of the sale amount. This line is lower down on the first page. So again, the first page of a real estate agent contract contains most of the important information. The rest is mostly boilerplate disclosures and legal notices (though you should still read them carefully).

Effective Data and Expiration Date: Two Important Numbers

Regardless of the state-by-state variations we talked about, all exclusive listing agreements have two very important dates on page one. These are the starting and ending dates of the listing period. In the snapshot above, they are referred to as the “beginning” date and “ending” dates. I’ve also seen them called the “effective date” and the “expiration date.” Either way, they mean the same thing. If the home is sold during that period, the agent named in the listing agreement gets the commission.

You can understand why an agent would want to have such a contract in place. It guarantees they will receive the agreed-upon commission in exchange for all the work they do. Indeed, this entire document is designed to protect the agent or broker. It offers little for the homeowner.

Your agent is asking you to sign an exclusive listing agreement with a 12-month term. Personally, I find this off-putting. I wouldn’t sign a one-year contract with any real estate agent, even if it was my own brother. What if you’re not happy with this person? What if you decide to “break up” with your agent down the road, in order to do an FSBO sale? Do you really want to wait a full year to have other options?

Granted, most agents and brokers will let their clients out of the contract, if the client is unhappy with their performance. Most would rather part ways with a client who is upset, rather than get in a legal dispute. I don’t blame them.

I researched your question through the Trulia website, and found that most brokers agreed on this. Joanne Masters, a real estate professional from Illinois, summed it up nicely: “I would never want to work with someone if they were not happy with my service. I would let you out of the contract with no problems.”

If you’re not comfortable with signing a one-year exclusive listing agreement, just ask for a shorter term. If this particular real estate agent has a problem with it, then you should find another agent. Plain and simple. I’m sure there are plenty of them out there who would want the job.